There’s one thing industry hopefully can look to when the Earth’s offshore oil and gas resources south of the giant Arctic icecap are exhausted. Many geologists now believe this vast and frigid region, as it melts away purportedly due to global warming, could expose drilling access to as much as a quarter of the planet’s remaining hydrocarbons.
For years offshore exploration and development have been limited to the 200-mile “economic” zones of the five nations — United States, Canada, Russia, Norway and Denmark — that border on the Arctic icecap. However, these endeavors have met with limited success.
Nonetheless, Alaska holds the honor of producing the first oil from Arctic outer continental shelf waters with BP’s Northstar oil field, which is in about six miles offshore Prudhoe Bay in state and federal waters. BP also is said to be close to sanctioning development of its OCS Liberty discovery.
The first offshore Arctic discovery to be developed in state waters was BP’s Endicott field east of Prudhoe Bay, which came online in 1987 and was the world’s first producing offshore Arctic oil field. Endicott is linked to shore with a 1.5-mile gravel causeway.
Other Arctic development projects in state waters offshore Alaska’s North Slope include Pioneer Natural Resources’ Oooguruk field, expected to be in production by early 2008, and Eni’s nearby Nikaitchuq field, under serious consideration for development starting in 2008.
Also encouraging is the U.S. Minerals Management Service’s proposed oil and gas lease sale for Alaska’s Chukchi Sea next February. It would be the first such federal lease sale in the remote Arctic region in some 17 years. MMS estimates that the sale area could hold a mean of 15 billion barrels of oil and 76 trillion cubic feet of natural gas. Proposed Chukchi Sea Lease Sale 193, stretching from north of Point Barrow to northwest of Cape Lisburne, contains about 29 million acres and extends from roughly 25 to 200 miles seaward. Water depths range from 95 feet to about 262 feet. Thus far, more than 90 exploration wells have been drilled in federal waters offshore Alaska, mostly in the Beaufort Sea.
Not smooth sailingIt has not all been smooth sailing for the offshore industry in the Alaska Arctic. Shell’s summer exploration program in the Beaufort Sea ground to a halt in mid-August when the U.S. Court of Appeals for the 9th Circuit placed a temporary hold on the company’s drilling plans until the court ruled on appeals by the North Slope Borough, the Alaska Eskimo Whaling Commission and several environmental organizations against MMS approval of the Shell program. The borough and whaling commission have long believed that offshore exploration activities threaten subsistence hunting activities, especially the hunting of bowhead whales. Shell had planned to start drilling its Sivulliq prospect on the western side of Camden Bay off the coast of the coastal plain of the Arctic National Wildlife Refuge. Because of the drilling delay, Shell reportedly began releasing workers who ironically included Alaska Natives.
Just west of Alaska’s northeastern border is Canada’s Beaufort-Mackenzie basin, a hydrocarbon-rich domain with numerous discoveries awaiting approval for a major pipeline to transport the gas portion to southern markets.
More than 180 exploration wells and around 60-plus development wells have been drilled in the Beaufort-Mackenzie basin, resulting in the discovery of more than 50 oil and gas fields, a high frontier success ratio of near 30 percent. The largest onshore discoveries include the Taglu field, with estimated recoverable natural gas reserves of 2 tcf and the Parsons Lake field, with gas reserves of 1.2 tcf. The largest offshore field is believed to be Amauligak, with an estimated 235 million barrels of oil reserves and 1.3 tcf of gas reserves.
Total discovered resources in the Beaufort-Mackenzie basin are estimated at around 9 tcf of recoverable gas and 1 billion barrels of recoverable oil. The petroleum resources of the area represent about 25 percent of the total oil and 20 percent of the total gas resource potential in Canadian frontier basins. However, with the exception of local gas production from the onshore Ikhil field near Inuvik, no oil or gas fields have been developed in the region to date.
Mostly gas in BarentsSo far, a total of 61 wells have been drilled in the Arctic Barents Sea in the search for oil. These efforts have mostly uncovered gas reserves, and analysts believe the area shows significant promise.
“We have experienced frustration and disappointments with dry wells along the way,” said Henrik Carlsen, senior vice president for Statoil’s Barents Sea operations. “However, we have gained valuable knowledge. The geology in the Barents Sea seems to be different from other parts of the Norwegian continental shelf. We must think in new ways and use new models to trace those hydrocarbons. We realize that we do not understand this geology well enough yet.”
Norway beat Russia with first production from its portion of the Arctic Barents Sea, when natural gas from the Statoil-operated Snohvit field development arrived via pipeline at a liquefied natural gas processing facility at Hammerfest in northern Norway on Aug. 21, after just over five years of construction. The Hammerfest plant is Europe’s first export facility of its kind.
From the beginning, Snohvit was pitched as the most environmentally friendly offshore development project in the world. For example, the entire offshore portion is subsea, with no production facilities protruding at the ocean surface.
“Viewed overall, the development of Snohvit involves the application of new technology which will be crucial for Statoil’s future, both in the far north and internationally,” Carlsen said. As for Russia, it is having considerable problems choosing partners to help develop its giant Shtokman natural gas discovery located in its portion of the Arctic Barents Sea.
At first, state-controlled Gazprom solicited proposals from potential partners but then decided to go it alone. More recently, Gazprom picked French oil major Total to help with Shtokman and launched another campaign to find additional partners. In early September, Reuter’s news service reported that Gazprom had received applications from five companies, which wanted to join Total in developing the field. The names were not disclosed. But other hopefuls are believed to be Norway’s Statoil and Norsk Hydro and U.S. oil major ConocoPhillips, Reuters said. Total would receive a 25 percent stake in the managing company for Shtokman.
High Arctic political issuesIn regard to the high Arctic, breaking out of each country’s 200-mile economic zone to claim territory beneath the icecap is far off and could be confrontational, depending on the attitude and politics of the five countries bordering on the high Arctic. In the meantime, the U.S. Geological Survey continues with a study that likely will be the most comprehensive oil and gas assessment of the entire upper Arctic region.
“Knowing the potential resources of the Arctic — an area of tremendous resource potential, environmental sensitivity, technological risk and geological uncertainty — is critical to our understanding of future energy supplies to the United States and the world,” said Mark Myers, former head of the Alaska Division of Oil and Gas and current director of USGS.
Little was known about this region’s true potential as an oil and gas producer until the release earlier this year of a USGS study of the so-called East Greenland Rift basins province. It was the first step leading to a USGS assessment of the entire high Arctic region, referred to as the Circum-Arctic Resource Appraisal. USGS said assessments “of all the Arctic provinces” would be released to the public over the next year.
The area of study takes in nearly 200,000 square miles, most of which underlies less than 1,640 feet of water offshore of eastern Greenland. USGS said most of the undiscovered oil, natural gas, and natural gas liquids are expected to be found in the offshore parts of the province.
Careful to note that no proven reserves have been discovered in northeastern Greenland, “significant undiscovered resource potential exists,” USGS concluded in its study, which estimates a mean resource in this province alone could be 31.4 billion barrels of oil equivalent. If this resource was proved and realized, northeastern Greenland would rank 19th compared to the world’s 500 other oil and gas provinces, USGS said.
In fact, new data made available for the current assessment significantly changed the geological understanding of northeastern Greenland, USGS said. In comparison to the 2000 USGS assessment of northeastern Greenland, the recent assessment “estimated significantly less total resource, more natural gas and natural gas liquids, and an increased ratio of gas to oil.”
These new geological data indicate that the burial and uplift history of the northeastern Greenland province and the source rock character are “suggestive of significantly more gas generation than we previously interpreted.” The 2000 assessment estimated 47 billion barrels of oil equivalent, or 81 tcf of natural gas and 4 billion barrels of natural gas liquids.
No doubt the significance of the Arctic has been magnified by the growing focus from professional energy forecasters and politicians about a near-term peaking in global oil supplies. This view has been confirmed by independent surveys that show industry’s biggest concern is its ability to replace spent oil reserves, despite record capital investment.
However, despite the current interest in the melting Arctic, not only as a hydrocarbon play but also as a possible ocean shipping route over the top of the globe, oil and gas explorers will have to wait until world politics decide who owns what and where. That’s because what resources are below the Arctic icecap are considered to be public domain.
Land grab has begunPublic domain or not, a land grab already has begun, spurred on by none other than Russia and its apparent desire to return to the glory years of the former Soviet Union, staking claim to property it does not own — in this case, a vast 460,800 square mile chunk of the ice-covered Arctic seabed. Moreover, this claim doesn’t seem to be about territory, but rather about the potential of huge hydrocarbon reserves that may be hidden beneath the seabed under the Arctic ice cap. A Russian scientific expedition, headed by a renowned Russian Arctic explorer leading a team of scientists, actually dove to the ocean floor and planted the country’s flag.
The Russians, who were earlier turned down in their request to claim more of the Arctic Ocean shelf for their country, are now preparing the data gained from the expedition to support a new claim to be presented to the United Nations committee empowered to resolve land claims offshore under the Law of the Sea Treaty. It seems Russia has set the world stage for what could develop into a serious confrontation with its Arctic neighbors.
A 40-member scientific team, including 10 Danes, followed the Russian expedition, which left in August on a research ship following a chartered Russian icebreaker. The research ship planned to use sophisticated equipment including sonar to map the continental shelf extending from Greenland to the highly prospective Lomonosov Ridge. This 1,240-mile submerged mountain range happens to be the same landmass Russia is claiming.
“The preliminary investigations done so far are very promising,” announced Helge Sander, the Danish minister of science, technology and innovation. “There are things suggesting that Denmark could be given the North Pole.”
The announcement of the start of the Danish expedition was followed by a U.S. announcement that it would be sending the Coast Guard Cutter Healy on a mission to map the seafloor on the northern Chukchi Cap, an underwater plateau that extends 500 miles northward from Alaska’s North Slope.
Clearly, the United States is at a disadvantage in this global land grab because it is not a signatory to the UN Law of the Sea Treaty, something President George W. Bush is trying to convince the Congress to remedy.
With all this activity from neighboring Arctic Ocean countries, Canada has accelerated its response. Rather than sending scientists, although there are reportedly some Canadians on the Danish expedition, the country elected to send its prime minister, Stephen Harper, on a three-day trip to the far north region of the country to announce plans to expand Canada’s presence in the region. He announced plans to build an army training center for 100 troops in Resolute Bay along with a deepwater port on Baffin Island. While on his trip, he added plans for a second deepwater port.